Waterco Limited (ASX:WAT) delivered record FY26 EBIT of $23.8 million and lifted net profit after tax 59.6% to $15.4 million, despite only modest revenue growth. The stronger result supports a higher fully franked dividend, but the group is carrying more debt and inventory as it expands manufacturing capacity.
- Record statutory EBIT of $23.8 million, up 42%
- NPAT rose 59.6% to $15.4 million
- Total fully franked dividends increased to 20 cents per share
- North American and Asian operations drove regional earnings growth
- Net debt rose to $31.3 million as manufacturing investment accelerated
Record earnings arrive without a major revenue surge
Waterco’s FY26 turnaround was driven less by sales momentum than by what happened below the revenue line. Operating revenue rose just 1.7% to $259.3 million and sales revenue increased 1.4% to $253.0 million, while statutory EBIT jumped 42% to a record $23.8 million. Net profit after tax rose 59.6% to $15.4 million, lifting basic earnings per share from 27.2 cents to 44.0 cents.
The improvement reflected continued insourcing of critical manufacturing components, tighter cost management and a sharp reduction in foreign exchange losses. Waterco reported an underlying EBIT increase from $20.6 million to $24.8 million, while the EBIT margin on sales revenue expanded to 9.4%, from 6.7% in FY25. Management nevertheless said margins remain below its preferred level.
International operations carried the earnings recovery
The geographic split tells a more complicated story than the group headline. Australia and New Zealand EBIT fell 12% to $11.5 million, with softer New Zealand demand, restructuring costs and temporary stock constraints linked to Davey plastics manufacturing moving into Malaysia weighing on the division.
North America and Europe delivered the strongest established-region improvement, with EBIT rising 59% to $7.2 million. Waterco said stronger North American commercial sales and custom pressure-vessel work supported record profitability despite US tariffs. Asia and the Middle East swung from an EBIT loss of $857,000 to a $5.1 million contribution, helped by the absence of last year’s legacy intercompany foreign-exchange losses and an 11% increase in external sales.
That regional recovery follows a difficult FY25, when earnings were hit by restructuring and currency costs; the current report puts the contrast in sharper relief than the headline revenue change. The group also established a European distribution alliance during the year, while Middle Eastern sales remained resilient despite shipping disruption and geopolitical tensions.
Higher dividends come with heavier investment demands
Waterco declared a final dividend of 13 cents per share, taking total FY26 dividends to 20 cents, fully franked, compared with 15 cents a year earlier. The final payment is scheduled for 13 November 2026. The group also began a new $2 million on-market buyback after year-end, targeting approximately 400,000 shares through 30 June 2027 unless the allocation is exhausted earlier.
Capital investment and working capital are moving in the opposite direction to the share count. Net debt rose from $24.9 million to $31.3 million, while inventory increased to $99.2 million and included a $4.8 million provision for write-downs. Operating cash flow fell to $14.3 million from $21.1 million, even as capital expenditure increased to $8.6 million from $3.0 million. Waterco said its enlarged Westpac facilities total $52.25 million, with $40 million drawn at year-end, and that all financial covenants were met.
FY27 hinges on manufacturing and product execution
The company expects warehouse consolidation and supply-chain efficiencies across Waterco and Davey to begin contributing annual savings in FY27. It is also progressing a Malaysian manufacturing expansion at Serendah and preparing product launches including the Electrochlor GEN2 platform, Waterco Connect, OPTI chlorine sensing technology and the MultiCyclone 16 GEN2 filter. A new business-to-business trade portal is also due to launch.
Those initiatives give Waterco several avenues to improve margins, but they also leave execution at the centre of the next reporting period. Management has flagged interest-rate sensitivity, with a two-percentage-point move estimated to affect profit by about $1.0 million, while inventory, exchange rates, tariffs and Middle East freight conditions remain live variables. The question for FY27 is whether the manufacturing benefits arrive quickly enough to turn a strong earnings rebound into durable operating leverage.
Bottom Line?
Waterco has restored earnings power and increased shareholder distributions, but FY27 must prove that rising investment, inventory and debt can translate into sustained margin improvement.
Questions in the middle?
- Can the Malaysia insourcing program and warehouse consolidation deliver the expected FY27 savings without another supply disruption?
- Will revenue growth broaden beyond North America and Asia while ANZ earnings recover?
- How much financial flexibility will remain after the larger dividend, buyback and planned manufacturing expansion?